S&P af­firms for­eign, lo­cal cur­rency rat­ings on M’sia

> Its stance is un­der­pinned by strong ex­ter­nal po­si­tion and con­sid­er­able mon­e­tary pol­icy flex­i­bil­ity

The Sun (Malaysia) - - SUNBIZ -

PETALING JAYA: S&P Global Rat­ings has af­firmed its ‘A-’ longterm and ‘A-2’ short-term for­eign cur­rency sov­er­eign credit rat­ings on Malaysia with a sta­ble out­look on strong ex­ter­nal po­si­tion, con­sid­er­able mon­e­tary pol­icy flex­i­bil­ity and mod­er­ate fis­cal deficits and gov­ern­ment debt bur­den.

It also af­firmed the ‘A’ longterm and ‘A-1’ short-term lo­cal cur­rency sov­er­eign credit rat­ings on Malaysia.

“The sov­er­eign credit rat­ings on Malaysia re­flect a strong ex­ter­nal po­si­tion and con­sid­er­able mon­e­tary pol­icy flex­i­bil­ity. We weigh these strengths against Malaysia’s mod­er­ate fis­cal deficits and

gov­ern­ment debt bur­den. In our view, on­go­ing po­lit­i­cal chal­lenges in re­la­tion to the cor­rup­tion al­le­ga­tions of 1Malaysia De­vel­op­ment Bhd (1MDB) will not im­pede cur­rent pol­icy flex­i­bil­ity and re­spon­sive­ness,” it said in a state­ment yes­ter­day.

The rat­ings are un­der­pinned by Malaysia’s strong ex­ter­nal po­si­tion, which is a re­sult of many years of sub­stan­tial cur­rent ac­count sur­pluses and which S&P be­lieves can with­stand a fur­ther slow­down in the oil and gas sec­tor over the next two years.

“Like­wise, ex­ter­nal in­di­ca­tors are likely to re­main un­changed, given our as­sump­tion of con­tin­ued healthy trade sur­pluses. The weak­ened ring­git should con­tinue to sup­port the com­pet­i­tive­ness of Malaysia’s man­u­fac­tured goods, par­tially off­set­ting the im­pact of de­pressed en­ergy prices,” it said.

S&P’s sta­ble out­look re­flects its ex­pec­ta­tion that Malaysia’s strong ex­ter­nal po­si­tion and mon­e­tary flex­i­bil­ity will bal­ance its rel­a­tively weak, but sta­ble, pub­lic fi­nances over the next 24 months.

The rat­ings may be raised if stronger eco­nomic growth and fis­cal ef­forts im­prove bud­getary out­comes and in turn al­lows the gov­ern­ment to sub­stan­tially lower its debt bur­den. They may be low­ered if Malaysia’s pub­lic fi­nances or in­sti­tu­tional set­tings weaken.

“Such a change could hap­pen, for ex­am­ple, if the gov­ern­ment re­verses its re­cent fis­cal mea­sures or there is a ma­te­rial de­te­ri­o­ra­tion in po­lit­i­cal sta­bil­ity re­lated to on­go­ing al­le­ga­tions against se­nior gov­ern­ment of­fi­cials. We may also lower the rat­ings if con­tin­gent li­a­bil­i­ties in­crease such that we re­vise up­ward our as­sess­ment of the gov­ern­ment’s debt bur­den.”

S&P ex­pects net gen­eral gov­ern­ment debt to peak at 51% of gross do­mes­tic prod­uct (GDP) in 2017 be­fore mod­estly de­clin­ing.

Malaysia’s gen­eral gov­ern­ment fis­cal po­si­tion also car­ries con­tin­gent risks from its pub­lic en­ter­prises and fi­nan­cial sec­tor.

“These con­tin­gent risks in­clude guar­an­tees on debts and let­ters of sup­port (in­clud­ing the US$3 bil­lion let­ter of sup­port for 1MDB, which we re­gard as a di­rect fi­nan­cial obli­ga­tion of the gov­ern­ment). We do not ex­pect such con­tin­gent li­a­bil­i­ties to ma­te­ri­alise sig­nif­i­cantly within our fore­cast hori­zon.

“Malaysia’s pub­lic en­ter­prises have di­verse fi­nan­cial pro­files – some with strong free cash flows and size­able liq­uid as­sets that, in the past, have been used to sup­port other parts of the pub­lic sec­tor,” it said.

Malaysia’s fis­cal per­for­mance im­proved, with the an­nual in­crease in gen­eral gov­ern­ment debt av­er­ag­ing 6% of GDP over 2009-2012 while deficits have since been cur­tailed. S&P pro­jected the av­er­age an­nual in­crease in debt at 2.9% of GDP over 2016-2019.

Although high house­hold debt lev­els pose some risks, S&P be­lieves it is some­what con­tained by a bank­ing sec­tor that is well cap­i­talised and has good reg­u­la­tory record.

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.